ARSLAN

Our Vision
To transform SBP into a modern
and dynamic central bank, highly
professional and efficient, fully
equipped to play a meaningful role,
on sustainable basis, in the economic
and social development of Pakistan
 Our Mission
To promote monetary and
financial stability and foster a
sound and dynamic financial
system, so as to achieve sustained
and equitable economic growth
and prosperity in Pakistan.
 BANK
STATE BANK OF
PAKISTAN

FUNCTIONS

TRADITIONAL FUNCTIONS

PRIMARY FUNCTIONS

SECONDARY FUNCTIONS

NON TRADITIONAL
FUNCTIONS
The Primary Functions including issue of notes,
regulation of the financial system, lender of the
last resort, and conduct of monetary policy.
The Secondary Functions including
management of public debt, management of
foreign exchange, advising the Government on
policy matters, anchoring payments system, and
maintaining close relationships with international
financial institutions.
 Terms to know
• Trustee • Credit instruments
• Demand liabilities • T bill
• Time liabilities • Bill of exchange
• Money market • Bank rate
• Credit
• securities
 Bank
A financial institution that accepts
deposits, extends credit and channels the
money into the lending activities.
 Common features of a bank
• Accepting deposits from the public
• Lending money to the public
• Transferring money from one place to other
(Remittances)
• Acting as trustee
• Managing govt. business
 Types of banks
• Retail bank
• Investment bank
• Islamic bank
• Central bank
 Retail bank
• Manages small and individual businesses

– Commercial bank
– Community development bank
– Saving bank
– Mortgage bank
– Private bank
 Investment bank
• Manages the activities on the financial
markets

– Merchant bank
– Cooperative bank
– Consumer bank
 Islamic bank
• Adheres the concept of Islamic methods in
banking
• Revolves around well established concepts
based on Islamic cannon
 Central bank
• Principal monetary authority of the nation

Oldest Central Bank

• The central bank of Sweden(1668)
• The bank of England(1694)
• U.S federal reserve created by U.S congress(1913)
 Scheduled banks
• Functioning under direct supervision of central
bank
Non scheduled banks
• Working on there on

All banks in Pakistan are scheduled

SBP
 History
• Reserve bank of India as the central bank
of Pakistan(1947)
• Distribution of reserves of India’s bank
• Establishment of state bank on July 1
1948
 Constitution
• Order 1948
• Regulating issue of notes
• Keeping reserves for monetary stability
• 1956 act of S.B.P
• Regulating issue of notes
• Keeping reserves for monetary stability
• Utilization of countries resources
• Foster the growth of credit system of Pakistan
 Power of State Bank
• Power increased in 1956,1974 and 1997
act of S.B.P
• Complete autonomy to
• Regulate banking
• Issue notes
• Stabilizing exchange rates
• Promote investment
• Control inflation
 Share Capital
• Original share capital 3 crore
• 51% by central govt.
• 49% by private sector
• Nationalized in 1974
 Management
• Chief executive is governor (for three
years)
• One or more deputy governors (for five
years)
• Present governor of state bank of Pakistan
Dr. Salim Raza
 Departments
• Accounts dept. • Legal division
• Issue dept. • Research dept.
• Administration dept. • Security dept.
• Audit dept. • Statistic dept.
• Banking dept. • Training dept.
• Engineering dept. • Agriculture dept.
• Exchange control • Public relations
dept. training dept.
 Head Quarter and Offices
• Head quarter at Karachi
• Sixteen local offices at:
Hyderabad, Multan, Faisalabad, Sukkar, Quetta,
Lahore, Peshawar, Gujranwala, D.I khan,
Sialkot, Muzaffarabad, Rawalpindi, Bahawalpur,
Islamabad.
Functions
 FUNCTIONS
• Traditional functions
– Primary functions
– Secondary functions
• Non traditional functions
 Primary Functions
• Bank of issue
• Bankers to the government
• Regulation of financial system
• Bankers bank
• Conducting the monetary policy
• Lender of the last resort
 Bank of issue
• Regulation of the currency requirements
• Sole authority to issue notes
• Issue of coins(1%) by govt.
• Issue of notes commemorative notes and
coins(99%) by S.B.P
 Issue Departments
• Lahore
• Karachi
• Peshawar
• Queta
 Systems of issuing notes

• Fixed fiduciary system

• Proportional reserve system
 Fixed fiduciary system
• Issue of notes to a certain limit without
reserves
• 100% reserves after crossing the limits
 Proportional reserve system
• Keeping 20% reserves for every note
being issued
• Reserves as gold, silver bullions, foreign
exchange etc.
 Banker to the government
• Hold cash balance of govt.
• Providing short term loans
• Salaries of govt. employees
• Collection of taxes
Regulation and supervision of the
financial system
• Safe guards and stabilizes the financial
system
• Monitoring the performance of the banking
companies
• Regulation of Banks like DFI and MFB
Regulation and supervision of
the financial system
• Off-site monitoring
• On-site monitoring
• Prudential regulations
• Rules of business
• CAMELS (capital, assets quality,
management soundness, earnings,
liquidity and sensitivity to other risks)
 Bankers bank
•Statuary reserves of scheduled banks

•Provide loans by rediscounting of bills

•Provide guidance
 Bankers bank
• Fixation of cash/deposit ratio
• Weekly statements and annual reports
• Sole authority to determine the authorized
• and paid up capital
 Conduct of monetary policy
Control of total credit in the country
and total money supply is
monetary policy
 Objectives
• Regulation of money supply
• To stabilize interest rate
• To increase the employment opportunities.
• To increase investment.
• Price control
METHODS OF CREDIT CONTROL.

1. QUANTITATIVE CONTROL

3. QUALITATIVE CONTROL
QUANTITATIVE CONTROL
• Bank rate policy
• OMO
• Variation in reserve requirement
• Credit rationing
• SBP 3 day repo rate
• T-bill auction rate
 BANK RATE POLICY
• Bank rate is the rate at which a central
bank rediscounts bills of exchange.
• A tool to control and regulate
– central money supply
– bank loans
– structure of interest rates
• SBP’s current bank rate is 7.5%
 OPEN MARKET OPERATIONS
• Sales and purchase of govt. securities in
the open market
• OMO is a tool to regulate
– currency circulation
– credit policies of other banks.
• 80 OMO’s in the year 2006
 VARIATION IN RESERVE REQUIRMENT
• To decrease money supply SBP raises the
reserve ratio

CREDIT RATIONING
• a useful tool to control money supply.
 SBP 3 DAY REPO RATE.
• 3 days lending facility through reverse
repo transactions.

T-BILL AUCTION RATE

• SBP 3 day repo rate influences the yield of
T-bills sold through auction.
QUALITATIVE CONTROL
• Change in margin requirement
• Moral persuasion
• Publicity
• Direct-action
 LENDER OF THE LAST RESORT

• SBP provides loans and rediscount facilities to

scheduled banks in times of need.

• These loans are short term in nature.

 Secondary functions
• Public debt management
• Exchange rate management
• Advisor and agent to the government
• Relationship with IFIs
 Public debt management
• The public debt act 1944
– Subscribing govt. securities at the time of
issue
– Sale and purchase of securities
– Interest payment to holders of public debt
instruments
 EDMD
• Exchange and debt management
department
– To manage public debt
– Created in Feb 2000
 Management Of Foreign
Exchange
• Responsibilities of S.B.P. for Management
of Foreign Exchange:
– Sales/Purchase of
• Gold & Silver
• Foreign exchange
• Transactions of special drawing rights with
I.M.F
 Exchange rate systems
• Link of Pak rupee with pound and dollar
• Managed floating exchange rate system
– Value of rupee determined on daily base
• Market based floating exchange rate
system
– Value of rupee determined by demand
 Management Of Foreign
Exchange
• Keeping the records of payment
obligations
• investment of surplus reserves to ensure
liquidity of funds & maximize earnings
 S.B.P as Advisor to Govt.
• Recommendations to the govt. on
– Economic
– Financial
– Agricultural credit
– Industrial finance
– Savings
• Agent to buy foreign exchange
 Relationships With IFIs
• Agreements of provincial & Federal Govt.
with IFIs
• IFIs include:
– Bank for International settlements
– World Bank
– Central Banks of Foreign Countries
 Non traditional functions
OBJECTIVES
• To enhance the economic growth
• To promote the fuller utilization of
economic resources
• To expand the scope of banking
operations
 Non traditional functions
• Development of banking system
• Development of specialized financial
institutions
• Training facilities to bankers
• Credit to priority sectors
Development of banking system
• Need for independent authority for
monetary control
• Contribution to rehabilitation of the
banking system in Pakistan
• Collapse of commercial banking system
Development of banking system
• Commercial banking system

• Islamic banking system

• Creation of microfinance institutions

 Commercial banking
• Establishment of NBP
• Reserve internal banking for local banks
• Introduction of foreign banks in Pakistan
• Financial sector liberalization
• At present
– 7301 local commercial banks
– 105 foreign commercial banks
 Microfinance institutions
• Introduction of microfinance banks
– Khushali bank (public sector)
– First microfinance bank FMFB (private sector)
• At present
– 6 MFB’s operating in Pakistan
– 3060 branches
– 700000 borrowers
 Islamic banking
• Establishment of sharih board
– Comprising two religion scholars and three
experts
– Advise S.B.P on Islamic banking system
• At present
– 3 local Islamic banks
– 1 foreign Islamic bank
 Year Wise Entry of Players
• 2003
• 1. Meezan Bank
• 2. Bank of Khyber
• 3. MCB Bank
• 4. Bank Alfalah
• 2004
• 1. Albaraka Islamic Bank
• 2. Habib Bank AG Zurich
• 3. Standard Chartered
• 4. Metropolitan Bank
• 5. Soneri Bank
• 2005
• 1. Habib Bank
• 2. Bank Al Habib
 Year Wise Entry of Players
• 2006
• 1. Dubai Islamic Bank
• 2. Bank Islami Pakistan
• 3. ABN Amro N.V. (Now RBS Bank)
• 4. Askari Bank Ltd.
• 5. National Bank
• 6. United Bank Ltd.
• 2007
• 1. Emirates Global Islamic
• 2. Dawood Islamic Bank
 Development of specialized
financial institutions
• To provide long and medium term
financing facilities
– PICIC
– IDB
– HBFC
 Development of specialized
financial institutions
• To provide short term finance facilities
– SME bank
– The equity participation funds
– Bankers equity corporation
 Training facilities of S.B.P
• Institute of bankers Pakistan
• Training departments
• NIBAF
• SEANZA courses
 Institute of bankers Pakistan
• Established in 1951 for conducting
examination in banking courses
• Training programs offered by IBP
– On-site training
– Over seas training
– Training by international speakers
– Training in IT
 Training departments
• 1981-82 two training departments
established at
– Karachi
– Lahore
• Secure training position for bank officials
 NIBAF
• National institute of banking and finance
• Training programs conducted
– SBOT
– Joint Directors training
– Research officers training
– International courses on central and
commercial banking
 SEANZA courses
• South East Asia, new Zealand and
Australia association of central banks
• SEANZA courses held each year in one of
its member countries
• S.B.P hosted the 5th and 20th SEANZA
courses
 Credit to priority sectors

• Credit schemes to channel resources

towards priority sectors
• Spending credit to increase efficiency in all
the sectors of economy
 Credit to priority sectors

Credit schemes
• Credit guarantee scheme
• Credit to agriculture
• Export finance scheme